What is the difference between tax evasion and tax avoidance?

Although the terms tax evasion and tax avoidance are often used together and treated as synonymous, these terms refer to very different acts.  The biggest difference is that tax avoidance may be legal where tax evasion is illegal and carries with it serious civil and criminal penalties that may include jail time.

Businesses and individuals may legitimately reduce their taxes owed using tax deductions, tax credits, and tax deferral provisions provided for in the Internal Revenue Code.  By fully leveraging the laws in the Internal Revenue Code and other methods approved by the IRS, taxpayers can properly avoid paying more taxes than necessary under the law.  Some examples of tax avoidance include accounting for all ordinary and necessary business expenses throughout the year to maximize tax deductions, enrolling in employer sponsored retirement savings plans or contributing to your own IRA to take advantage of tax deductible contributions.

However, businesses and individual taxpayers engage in tax evasion when illegal methods are utilized to reduce or even eliminate taxes owed.  Some examples of tax evasion include willfully underpaying taxes owed, failing to file tax returns, filing false or fraudulent tax returns, overstating or fabricating tax deductions, failing to report and pay payroll taxes, making false statements to the IRS, or willfully concealing records or information from the IRS.

IRS Whistleblower F.A.Q.

  1. What is the difference between Form 211 and Form 3949-A?
  2. What is the difference between tax evasion and tax avoidance?
  3. Are Whistleblower’s Protected?
  4. How do whistleblowers get paid?
  5. How do you report a taxpayer to the IRS anonymously?
  6. Will the IRS tell me if they are taking action on my whistleblower claim?
  7. Why was my whistleblower claim denied?